Car Subscriptions and the Future of Personal Auto Insurance

As we all know, Millennial consumers expect speed, transparency, & online access.  This is true whether we are dealing with consumers or businesses.  There are some interesting developments that might impact personal auto premiums.

One of the most discussed is the sharing economy.  There is a generational shift in terms of car ownership.  People want alternative ownership or usage-based models.  Layer in Uber and Lyft, and it’s quite easy not to own a car.

Ridesharing aside, car dealers and manufacturers are starting to sell cars via monthly subscriptions.  Currently, these lean towards the luxury market and standard in the monthly fee is insurance – with very generous limits.

BMW launched a program where you can subscribe to cars for as low as $998/mo.  Mercedes Benz has a program as does PorscheAudi’s subscription includes rentals through their Silvercar rental company.

What’s the benefit.  You exchange cars when you want.  You can drive an SUV one week and a coupe the next.

Volvo’s subscription resembles cell phone financing options and isn’t as generous.  You pay a fee for 24 months and can exchange after 12 months for a new model.  They are using Liberty Mutual to underwrite the policy

At the lower end, you have startups like Fair and Flexdrive who partner with local car dealers to provide subscriptions to used cars.  Both companies underwrite through Assurant.

Why should a Carrier care?

Instead of having a pool of hundreds of thousands of potential customers, carriers may be dependent on winning a couple of large global contracts.  In this case, the personal auto business will decline while a few commercial lines carriers will benefit.

The Bulls

  • Subscriptions simplify ownership and consumers like that
  • Small businesses will like the fact they can increase or decrease vehicles as business needs change
  • The biggest carriers and brokers will dominate

The Bears

  • Consumers and businesses still want to own the vehicles
  • Profitability and risk exposure is unknown
  • It’s only attractive for a small segment of the population

The Path Forward

As with anything, it’s very important to pay attention to what’s going on outside your four walls.

Look at the move to subscription auto thru four lenses:

  1. Will this type of product create new value for you and your policyholders?
  2. If you don’t provide a similar product, will you lose market share?
  3. How might this destroy old paradigms and insurance products?
  4. How can this type of product help improve operational efficiency and customer experience?

Evaluating the upside and downside of any new product innovation positions you to better meet the changing needs of your agents, customers, & employees.

About Insurtech Advisors

Insurtech Advisors is dedicated to helping regional insurance carriers plan for the future today.  We help you identify and partner with Insurtechs.  This enables you to thrive and continue to meet the needs of your members, employees, and independent agents.

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